Fraudsters use a wide array of tactics in their hunt for a new mark, and
the Securities and Exchange Commission (SEC) recently started cracking
down on a new method, posting deceptive articles on relevant sites.
The SEC announced earlier this year that fraud charges were filed against
27 businesses and people for the alleged publication of deceptive articles
on investment research websites frequently used by the public. According
to the Commission, these authors were paid by scammers to write and publish
hundreds of bullish articles on certain publicly listed companies, and
broke the law when they failed to disclose the fact that they were paid
to write this content to readers.
"These companies, promoters and writers allegedly misled investors
by disguising paid promotions as objective and independent analyses,”
Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement,
said in a written statement.
In addition to these writers’ failure to disclose their financial
ties, they also reportedly hid their identities by using pseudonyms. Some
writers even created new biographies that claimed years of significant
experience in the industry. In order to better arm people with the knowledge
they need to protect their investments, the SEC
released an Investor Bulletin warning potential investors of these scams. Some key steps to follow to
protect yourself include:
Look into the author’s background. While certain sites have implemented steps to prevent this type of scam
from being published on their site, it’s always best to do some
independent research to confirm that the information is coming from an
unbiased source. There are multiple tools available to the public, including
Investment Adviser Public Disclosure website and FINRA's
BrokerCheck. If you’re having trouble finding information on the author or authors
in question, that is likely a red flag.
Always proceed with caution when articles promote microcap stocks. These types of stocks are for small companies that have low trading volumes,
and microcap stocks that trade under $5 per share can also be referred
to as penny stocks. Penny stocks don’t need to follow the same rules
around reporting that exchange-traded stocks need to follow, and this
often results in enforcement cases being brought against stock promoters
by the SEC every year.
Use multiple sources. If you find information that seems too good to be true, there’s
a good chance that it is. However, if you find the same or similar great
information from multiple sources, then odds are you’ve found the
gold nugget you’ve been looking for. If you are unable to find even
a second source promoting the information, then that should be a red flag
to stay away.
Our investment fraud attorneys at Meyer Wilson have recovered more than
$350 million in verdicts and settlements over our nearly 20 years of working
with victims of fraud, and we remain dedicated to fighting to secure the
legal outcome each of our clients need. If you were the victim of a scam,
contact us today to learn what we can do to assist you.